The French subsidiary of Netflix targeted by a tax audit

The American streaming giant Netflix has been the subject of a tax audit in France since 2022, covering the 2019, 2020 and 2021 financial years of its French subsidiary, according to information from Lettre A, confirmed Wednesday to AFP by a source close to the case.

Until 2021, Netflix "minimized its taxation by declaring its turnover in France in the Netherlands", its customers contracting with a Dutch company, writes Letter A. "Between 2019 and 2020, Netflix Services France", who already claimed 7 million subscribers in France, thus paid “only 981,000 euros in tax on profits”. After the abandonment of this financial arrangement in 2021, the turnover declared in France by Netflix jumped from 47.1 million euros in 2020 to 1.2 billion euros, then to “1.3 billion euros. 'euros in 2022', when the bar of 10 million tricolor subscribers was crossed.

Looking at the 2021 financial year, “tax officials intend to check whether (…) Netflix has not continued to abusively minimize its profits”, explains Letter A. It cites in particular the gap between the “microscopic operating margin”, of less than 2%, generated in France by the platform in 2021, and that of its American parent company, of 20%, ensuring that “this gap persisted in 2022”, exercise on which the company "paid only 6.5 million euros in profits". “By re-invoicing a large part of its turnover to other Netflix entities abroad”, the firm engages in “a practice of legal tax optimization” under certain conditions, explains Letter A. In the event of abuse, Bercy could decide on a recovery, as has been the case in recent years for other digital giants, including Google.

For its part, Netflix ensures compliance with French regulations by complying with the obligations of investment in creation, by paying the full rate VAT as well as the contribution to the CNC up to 5.15% of its turnover. "We comply with the tax rules of all the countries in which we operate around the world," a Netflix spokesperson told AFP on Wednesday. “At the same time, we support a reform of the international tax system in order to give a clear framework to companies operating in an increasingly digital world” added the spokesperson for the group who arrived in France in 2014.

With more than 238 million subscribers worldwide, Netflix achieved $8.2 billion in revenue in the second quarter of 2023. Contacted, the Directorate General of Public Finance (DGFiP) did not comment.